Elements of Insurance Policy Forms

Since most of the insurance contracts are simple contracts, these need not necessarily be in writing. The exceptions are fidelity guarantee contracts and marine insurance contracts which are required to be evidenced in writing because of the requirement of law.

However, as a rule, insurers do issue policies with regard to all types of insurance contracts. It should be known by the students that a policy as such is not the contract in itself, it is simply an evidence to the contract which already exists.

In practice, different insurers use different types of policies for the same class of business and there is no standardization as such. In some classes of business it may be seen, however, that most of the wordings have been standardized and an example may be the standard fire policy.

Apart from this, another common feature that will be found in almost all policies is the appearance of a schedule, where all important information pertaining to the insurance are marshaled.

The advantage of such scheduled, policies is that one can easily find out the important information from the schedule rather than taking the trouble of going through the whole policy wordings.

POLICY SECTIONS

Whatever might be the type or class of a policy, it will invariably have the following sections:

  1. Heading: hi this section will appear the name and address of the company.
  2. Recital Clause: This is also known as preamble. 11 gives a start for arriving at the Operative Clause by saying that as the insured has made a proposal and declaration (which shall form the basis of the contract) for taking out a policy of insurance and as he has paid or agreed to pay the premium, therefore, the insurer agrees to provide him cover in respect of loss, damage or destruction etc. as per the Operative Clause.
  3. Operative Clause: This section, the scope of cover provided under the policy is mentioned, followed up by exceptions in order to indicate the precise range of cover.Sometimes exceptions do also appear partly under conditions, but in scheduled form of policies these are usually grouped in one place and mostly within the operative clause.It becomes easier than to understand as to what is precisely covered by the policy and what is not. There is usually a war exclusion clause appearing within the operative clause.
  4. Schedule: Most of the vital information about the particular insurance are grouped here. It gives the name, address and occupation of the insured, subject-matter of insurance, premium and renewal premium, period of insurance, policy number, renewal date, renewal premium, sum-insured etc.
  5. Attestation Clause: This is also known as signature clause and appears just below the Schedule. The person authorized puts his signature and date here for and on behalf of the insurer.
  6. Conditions: In some policies the conditions appear after the Attestation Clause and in some policies these appear before the Schedule.Whatever it is, these are usually grouped together.Some of these conditions are
    (a) conditions precedent to contract, e. g., disclosure of material facts prior to completion of the contract, some are
    (b) conditions subsequent to contract, e. g., notice of alteration to insurers, and some are
    (c) conditions precedent to liability, e. g., notice of loss to insurers.

Generally, all these conditions fall under two main categories, viz., express conditions and implied conditions. Express conditions are those which appear on the policy specifically and implied conditions are those which even though are not appearing on the policy but, nevertheless, would apply.

Examples of implied conditions are observance of the duty of utmost good faith, existence of insurable interest, existence of the subject-matter etc.

The common express conditions that usually appear on a policy are;

  1. Misrepresentation: The insured should exercise utmost good faith in all his dealings pertaining to the insurance.If there is any non-disclosure, concealment, misrepresentation or suppression of any material fact then the contract shall be avoided by the option of the aggrieved party.
  2. Alteration: This condition requires that if after taking Out of the policy and during the continuation of the contract there is any change or material alteration in the risk which is likely to increase the risk then the insured must inform this alteration to the insurers and obtain their written consent.By this condition, the inherent duty of utmost good faith becomes a continued/contractual duty of utmost good faith. Life Policies do not contain such a condition.
  3. Claim: This lays down the rule relating to formalities to be observed by the insured when there is a loss.
    Normally, a time is prescribed within which the claim is to be lodged and all required papers and documents are to be submitted. If no time is mentioned then the claim is to be given within a reasonable time.
  4. Fraud: If the claim be in any respect fraudulent then the whole benefit under the policy may be forfeited.
  5. Subrogation: This condition states that in respect of a loss if there is any third party liable then the insurers may require the insured to realize the claim from the third party first.The insurers will pay the balance only if any or the full claim when there is no recovery. The students should recall that under common law, in the absence of policy condition as such, the insurers must pay the claim first and then take over the right of subrogation from the insured and proceed against the liable third party for any possible recovery.Life and personal accident policies do not contain such a condition since the principles of indemnity and subrogation do not apply thereto. Such a condition also does not appear in marine policies.
  6. Contribution: This condition requires that if at the time of loss there is found to be more than one policy involved covering the same loss of the same insured, then the insured must claim proportionately from all such policies involved and the liability under this policy shall be limited to its share only.The students should recall that if there is no condition in the policy as such, then under common law the insured can claim the full amount of loss from any of the policies involved, when the company paying the full loss would have the right of calling other interested insurers to pay it back their respective share of losses.Since the principles of indemnity and contribution do not apply to life and personal accident insurances, therefore, such a condition would not appear in such contracts.
  7. Arbitration: If there is any dispute in between the insurer and the insured relating to quantum of loss, liability being otherwise admitted, then such disputes shall have to be referred to arbitration. The decision of the arbitration shall be final, unless there is a mistake of law or misconduct or partiality. If the dispute relates to liability itself then it must go to court for decision.
  8. Cancellation: Both the parties to the contract are usually given the right to cancel the contract during its currency. Formalities as to cancellation are laid down here.

By examining life policy forms you should know that the express conditions are quite different therein.

They usually relate to

(a) Privilege conditions, indicating days of grace, surrender, paid-up, loans, non-forfeiture regulations etc. and
(b) Restrictive conditions, indicating foreign travel, residence, occupation, suicide, war etc.

The students should also observe that marine policies stand in a different category since they do not contain any express condition marshaled as such. The terms and conditions are rather scattered throughout the policy and the clauses attached thereto.